Something to Think About

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The bull-bear spread is 41.3%. The bears are down below 15%. Ugly to see them at 14.4%. We haven’t seen that level in decades. Makes you say what the heck am I doing, but the market still hasn’t had the reversal we normally see that gets the deeper selling under way. It will come as day turns to night, but with seasonal times being bullish, especially this, and often next week, you shouldn’t really try to front run the selling to come. See it and respond, but not before. Historically, this level of the spread has led to corrections between 23% and 55%. You can understand why I’m so cautious here, but you have to play what you see until it all goes away in a huge gap lower one of these days.

Of course, it doesn’t mean you should be involved 100% in your trading portfolio as some long exposure is definitely fine. Just recognize the risks and respond accordingly. Know that someday the market will hit us some, but if we’re not overly exposed it won’t be so bad when it finally arrives out of the blue, which is how these things occur. When you least expect it. There’s no real news, but down we go. With the spread at 41.3%, it can come tomorrow, or it can come a month from now, but it most definitely will come. We can hope seasonality allows things to hang around a bit longer, but when things are this stretched, every day is stressful, as I’m waiting for the market to take the plunge seemingly out of nowhere. Stay involved, but be smart meaning no greed for now.

Folks are asking me repeatedly how much I expect from the correction. It’s hard to imagine not getting at least a 10% move lower, but to be honest, there’s no way to really know. It could be 5% or 25%. A lot depends on wording from Mr. Bernanke in the months ahead and whether the market feels it still has a free open candy store or not. If it thinks it does, I wouldn’t expect more than 10%. If not, I would expect significantly more. The other question is when Jack? When will this begin?

Again, there’s no way to know due to the holiday season, but you don’t need to know folks. It will tell us. There’s no way we all won’t get caught some at the very end, but we’ve had a great run, so it’s fine. Being that perfect to get out is virtually impossible. If you do get out perfectly it’s luck, and that’s all it is. If you’re too afraid to play, that, too, is understandable, but I say stay in until we get the moment of reckoning. One day at a time for now. Keep some exposure. Lose the greed aspect and you’ll be fine.